When you are buying a house, you have to make an upfront deposit, aka a down payment. For many people who are buying their first house, the deposit along with other upfront expenses is the biggest hurdle.
For many, the mortgage can be a steeper challenge. It is fair to infer that most young homebuyers find it difficult to put together a substantial amount of money for the deposits – even though they can manage the mortgage given their recurring income.
There are certain realities you need to know and you should have a plan in place to put together your deposit. Here are the dos and don’ts of deposits.
- Your target should be to put together as much money as you can for the deposit and to get a loan for the remaining. Far too many homebuyers, especially the first-timers tend to make the least deposit that is acceptable to banks and they end up taking a massive home loan. That results into a staggering mortgage and one has to deal with the hefty payback every month. It is not just about the money you pay back or how much you have to pay every month. It eventually boils down to the amount of money you pay towards interest. With a larger deposit, you would pay less interest, you can reduce the term of the home loan and you can even pay it back entirely much sooner than having a larger loan.
- Don’t invest all the money you have into the deposit. You need money at hand. Don’t break all your savings or use the entire fortune you have to make a larger deposit. If you are being pressed for cash, then reduce the deposit. If you cannot come up with the least deposit, wait till you have enough money. You can ask for some help from your family or a loved one but that is not the best way to go about it. You would have a loan to repay and you would be indebted to the person lending you money as well.
- A larger deposit will make you more eligible for a loan. Issues pertaining to wage or dependents you may have will be leniently assessed when you make a large deposit.
- It’s not the best idea to make a small deposit and pay a larger instalment every month. Paying a hefty mortgage would cut down your scope of savings. A bit of crunch now, owing to a larger deposit, can make way for savings every month down the line due to a more affordable mortgage.